In what is set to be one of Wall Street’s biggest deals since the crash over a decade ago, Morgan Stanley is intent on buying E-trade in a $13 billion all-stock transaction. The deal will continue Morgan Stanley’s ongoing transformation into a more reliable financial firm that relies more on assets and wealth management.
The purchase of E-trade will carry across 5.2 million client accounts, $360 billion in retail clients’ assets and further customers that may now make use of Morgan Stanley’s vast expertise. Current rivals Charles Schwab and TD Ameritrade are currently mid-merger, so this consolidates Morgan Stanley and E-Trade position in the investment brokerage markets.
Forrester’s senior analyst, Vijay Raghavan told Finance Monthly: “In the wake of the price war that first started when Schwab got rid of stock trading commissions, E-trade was weakened because of its reliance on commissions - just like TD Ameritrade (before it was acquired by Charles Schwab).
“Nearly half of E-trade’s customer base (48%) is comprised of self-directed investors. Self-directed investors prefer robust trading tools, real-time market commentary, and charting tools, to name a few.
“Morgan Stanley’s wealth management business serves an affluent investor base who comprise the delegator segment, relying on financial advisors to make investment decisions for them.
“This acquisition complements Morgan Stanley’s existing affluent customer base, providing them with a wider array of customers with different levels of investable assets. It also gives them a direct-to-consumer brokerage business, and $56 billion in deposits which will help cut down on risk during an economic downturn.”
The transaction between Worldline and Ingenico, alongside Atos which is owned by Worldline, comes to together to create Europe’s largest payments company, and the fourth largest in the world.
Reports indicate the overall implied equity value of the buyout deal is EUR 7.8 billion (£6.6 billion), a 16% premium on the existing market capitalisation of Ingenico of around EUR 6.7 billion. The deal also serves to boost earnings per share in either firm and save the new firm around EUR 250 million by 2024.
Still awaiting regulatory approval, the transaction has not come as a surprise in the payments sector, and it should be expected to be finalised by the third quarter of 2020, by which Worldline shareholders will own a 65% majority stake in the new firm, and Ingenico shareholders would take away 35%.
Current Chairman and CEO of Worldline Gilles Grapinet will become solely the new company’s CEO, as Ingenico’s current Chairman Bernard Bourigeaud becomes the new entity’s non-executive chairman.
As a mechanism for fostering growth and increasing shareholder value, M&A is an important tool. In particular, cross-border mergers and acquisitions (M&A) can be a useful springboard for those eyeing expansion and future prosperity. Cross-border M&A has emerged to quickly gain access to new markets and customers. Cross-border deal activity continues and companies will need to weigh the risks and rewards of engaging in these ventures against making greenfield investments.
Advantages of cross-border M&A include expediting time to market, gaining access, scale, brand recognition and mitigating competitive moves. At the same time, companies are acknowledging the challenges posed by cross-border deals in terms of market assessment, regulatory evaluation, cultural fit and deal structure evaluation.
M&A market development and forecast
Based on international data*, global M&A activity in 2019 was down 6.9% compared with 2018 (which was a historical high), but still above 2016 and 2017 levels. Cross-border transactions have been reduced in the same time period by 6.2%. Taking a deeper look in the different regions of the world, transactions developed in different ways. While APAC and Europe report a significant downturn, MEA, Japan and Latin America report an increase. Also, Inbound and Outbound transactions evolve in different ways.
Figure 1 - M&A Market Datasource*: Baker McKenzie, Mergermarket, Deloitte - own illustration
M&A professionals expect that global deal-making will experience a continued hangover in 2020 due to ongoing worldwide economic uncertainty and the risk of a global recession. The deal flow in the next years will be mainly driven by technology, market consolidation, investor activism and private equity.
However, acquisitions do remain an important growth strategy for companies worldwide. It’s expected that economic conditions will improve by sometime in 2021 and the forecast predicts a subsequent uptick in transaction activity – especially in cross-border transactions.
The rewards of cross-border M&A
Several drivers create a considerable business case for cross-border M&A transactions. Saturation or slowdown in core markets and the need for diversification are the primary drivers. But regulatory uncertainty in home markets and high repatriation costs of overseas earnings, technology and productivity enhancement synergies are important drivers as well.
Based on these general considerations, companies take the extra effort of cross-border M&A transactions only if they can achieve substantial rewards from the specific target. Historically, the most important reward was to diversify the revenue streams of companies; either in product diversification or geographic diversification (portfolio diversification). At the same time, a regulatory environment which ensures investment protection or generates substantial tax benefits is a meaningful reward which can be realised (favourable regulatory environment).
By entering a new market through acquisition, companies can aid cost efficiencies if it increases sales (cost synergies). Besides costs, new markets create access to new customers and allow to scale fast (scale efficiencies), whilst besides these key rewards, companies can realise other rewards like access to new talents, adding new distribution networks or securing new product technologies.
The risks of cross-border M&A
Like with every strategic decision, rewards come with some specific risks. Due to the fact that every country has different tax laws, tax is a considerable risk. At first glance, getting tax security seems tedious, but getting blindsided by tax regulations can be very costly (tax). Besides tax regulations, other countries have different regulations for products, operational management, human resources, etc. This risk enforces a detailed analysis of the regulatory landscape of the target. A country’s political stability can also begin to totter, especially in the case of a change in Government; not only for developing countries but also for mature states (political landscape). In addition to “hard” facts, differences in culture and talent should not be forgotten.
Due to these risks, acquiring companies may have to recalibrate their perceptions of risk and their traditional due diligence process to address both common and unique risk factors that accompany cross-border M&A transactions. The deal team will need to focus on common risk factors such as national and regional tax laws, availability, accuracy and reliability of the target, company’s financial information, the country’s political stability and the target’s compliance with the required regulations.
Integrated M&A Maturity Model for efficient cross-border M&A deals
The complexity of cross-border M&A forces companies to establish efficient structures and processes. With integrated M&A transaction management, all necessary components for a successful transaction can be bundled. This approach ensures that all necessary experiences in merger & acquisition projects in terms of integrated control tools, project management tools and more are in place. With M&A 4.0 oriented platforms and tools it´s possible to increase process and cost efficiency, transaction security and the speed of the transaction.
Executive summary for cross-border M&A
Companies can generate significant rewards in cross-border M&A and increase their corporate value. Executives should plan ahead, conduct thorough due diligence and closely manage pre- and post-deal execution.
Below are some leading practices, based on the experiences of several M&A deals:
- Establish a sound M&A organisation through an integrated M&A maturity model.
- Ensure that the deal objectives/rewards are known and managed in all phases of the M&A lifecycle.
- Integrate all due diligence activities and manage the specific cross-border risk proactively.
- Optimise the deal structure to meet the deal objectives/rewards.
- Define the overall integration scope, approach and plan for achieving both day 1 and end-state goals.
About ARTEMIS Group and the Author
ARTEMIS Group is an international and cross-sector corporate finance and M&A consulting boutique for start-ups and medium-sized companies, active in the market since 2001. The core services cover mergers & acquisitions, corporate finance and advisory services. Based on a wide strategic partner network, ARTEMIS Group has a footprint in all relevant markets.
Torsten Adam, Managing Partner at ARTEMIS Group, has more than 25 years of work experience in mergers & acquisitions, corporate finance and advisory services. His core competencies are in the M&A transaction management, cross-border projects, structured and project finance as well as advisory services. He has been involved in numerous projects in the fields of automation & digitalisation, renewable energies & cleantech, agriculture & food and FinTech/financial services. Adam has overseen various cross-border M&A transactions with involvement from Asia, Africa, the Americas and Europe.
For $5.3 billion, Visa has agreed to acquire the Silicon Valley start-up Plaid, a firm that is already backed by huge tech investors such as Mary Meeker and Andreessen Horowitz as well as Goldman Sachs. It was valued in 2018 at $2.65bn and is now already worth twice as much.
For visa, this transactions means a deeper push into the ever-growing fintech sector, particularly after is bought a minority stake in Klarna in 2017.
Plaid is a software provider that enables other fintechs and payments services to access customer bank accounts and details, enabling smoother handling of information for financial planning apps, money transfer apps and so forth.
Al Kelly, chief executive and chairman of Visa, said: “This acquisition is the natural evolution of Visa's 60-year journey from safely and securely connecting buyers and sellers to connecting consumers with digital financial services.”
“The combination of Visa and Plaid will put us at the epicentre of the fintech world, expanding our total addressable market and accelerating our long-term revenue growth trajectory,” he continued, according to the FT.
Reporting on the agreed acquisition, Forbes fintech expert Jeff Kauflin believes Visa is strategically acquiring plaid for the sake of its relationships and partners: “Plaid’s 2019 revenue was between $100 and $200 million… Visa would be paying a sky-high price of 35 times sales, one of the highest price-sales multiples in recent history for a private company.
“Visa’s primary reasons for buying Plaid are twofold. First, Plaid works with the vast majority of the largest fintech apps in the US, including Venmo, Square Cash, Chime, Acorns, Robinhood, and Coinbase. With the acquisition, Visa gets access to an important, ballooning base of customers that it can sell additional payment services to. Second, Visa has a global network that’s unparalleled in financial technology, with millions of customers across 200 countries. That will make it much easier for Visa to take Plaid global.”
On the other hand, Stefano Vaccino, founder and CEO of Yapily, believes that this is just the first of many moves by card operators, in anticipation of the changes to the way we pay, powered by Open Banking: "It’s great to see big players positioning themselves in the world of open banking and open finance, this will help to accelerate the sector’s growth even further.
“Card payments are expensive for merchants to process, and with two-factor authentication on its way in the second part of this year, there will be an increased layer of friction. Payments through Open Banking will offer a smoother and more secure way to pay, and will provide an opportunity for merchants to decrease costs and transfer these benefits to consumers.
“This space will be disrupted hugely as the possibilities of open finance are realised, and incumbents must innovate to remain relevant.”
The project represents a $56 million investment, of which $40 million will be provided in the form of debt by Agence Française de Développement (AFD) and its subsidiary Proparco. Efacec, a Portuguese group established in Mozambique for several decades, will build the facility.
This is the solar project with the highest installed capacity to reach financial close in Mozambique and is an important milestone in the country’s energy strategy. The energy produced by the Metoro Power Plant is sold under a long term Power Purchase Agreement to EDM, Mozambique’s electricity utility and also a sponsor of the project.
Francisco Ferraz de Carvalho, partner in Linklaters' Global Energy and Infrastructure Group said: “Linklaters is delighted to having advised on one more project to successfully achieve financial close in Mozambique. The Metoro solar plant is a testimony to the country’s commitment to renewables energy and its structure sends the right sign for projects to come."
The power generated by the facility, which is due to enter service in late 2020, will be delivered at Metoro (Ancuabe district), the main transmission and distribution substation in northern Mozambique. It will supply the national grid and boost the power grid in the Provinces of Cabo Delgado and Nampula.
The Linklaters team was led by partners Francisco Ferraz de Carvalho (Lisbon) and Francois April (Paris). The core members of the team included Alex Bluett (managing associate, Paris), Samuel Bordeleau (managing associate, Paris), Rita Ferreira dos Santos (senior consultant, Lisbon) and Laura Vicente (associate, Lisbon).
Linklaters has been at the forefront of the Mozambican market for the past twenty years, having advised on the Mozal aluminium smelter, the Cahora Bassa hydroelectric plant, the Coral South FLNG plant and the Nacala transport corridor as well as on numerous transaction in the energy and infrastructure, mining and financial services sectors
Linklaters has 40 years’ experience of working on matters throughout Africa, helped by its unique ability to cover all of the principal legal systems through its offices in London, Lisbon and Paris and its alliance with Webber Wentzel in South Africa. These core offices are complemented by Africa experts across Linklaters’ other offices in Europe, Asia-Pacific, the Middle East and the Americas allowing the alliance to service investors into Africa worldwide as well as African companies investing globally.
Fiat Chrysler (FCA) and Peugeot-owner PSA have officially signed the papers to join via a binding agreement for a 50/50 merger of stock. PSA shareholders are set to receive 1.742 shares in the new and merged company, for each PSA share they already own. Vice versa, each FCA shareholder will receive 1 share of the new firm, for each FCA share they already hold.
The deal will conclude in around 15 months, creating a joint firm estimated at €170 billion in sales per year, or 8.7 million vehicles sold each year. As a consequence of the deal being struck, shares in PSA have risen 1.5% in Paris, whilst FCA stocks rose 0.3% in Milan.
A joint statement clarified that this deal will allow both firms to “address the challenge of shaping the new era of sustainable mobility,” whilst saving the companies around €3.7bn a year.
“Our merger is a huge opportunity to take a stronger position in the auto industry as we seek to master the transition to a world of clean, safe and sustainable mobility and to provide our customers with world-class products, technology, and services,” Carlos Tavares, chairman of Peugeot-maker PSA, said in the joint statement.
Moving forward, Tavares will take up the role as CEO of the merged company for the next five years, taking a seat on the board.
Make no mistake: if Schwab can pull off a deal for TD Ameritrade then it has pulled off something of a coup. It is not just the deal of the year-in this sector it is the deal of many a year.
The market is slightly stunned but loves the potential Schwab TD Ameritrade tie up and well it might. Schwab’ share price is up by 7.5% since news of the possible deal broke. For its part, TD Ameritrade’s share price is up by 17%.
Schwab already ranks first by market share in the discount brokerage market. Snapping up the number two player TD Ameritrade means that Schwab would tower over the sector.
However, regulatory approval for the proposed mega deal is in no way guaranteed. But if Schwab can get over the regulatory hurdles – and that is a big if – expect Schwab to boost its earnings per share. For starters that will come through better monetisaton of Ameritrade’s sweep deposits. Then there are the synergy cost savings.
KBW suggests that an all-equity transaction could equate to 10%-15% EPS accretion for Schwab. And such a forecast may even be on the conservative side.
Schwab has about $3.9trn in client assets and over 12 million active brokerage accounts. TD has about $1.3trn in assets and services 11 million client accounts. In addition, it provides custodian services for more than 6,000 independent advisers. Only privately held Fidelity, with about 30 million brokerage accounts, is in the same league.
However, Spare a thought meantime for shareholders of smaller rival E*Trade. Any Schwab/TD tie up is the stuff of nightmares for E*Trade and its share price promptly dropped by 10%.
(Source: Retail Banker International)
Javier Meseguer has been appointed as General Manager Southern Europe. Based in Madrid, he will report to Steffen Schaack, Senior Vice President Global Business Development, and will oversee Drooms’ business expansion in real estate, corporate finance and M&A in Spain, Portugal and Italy.
Drooms has also expanded its UK sales team with the appointments of Ditte Nielsen as Senior Business Development Manager and Alessandra Azzena as Business Development Manager. They will report to Rosanna Woods, Managing Director of Drooms UK.
Alexandre Grellier, co-founder and CEO of Drooms, commented: “We continue to see a need for digitalisation among our customers. This not only means making documents available in digital formats but also by ensuring that entire work processes are digitalised. Our latest expansion is the logical next step in our support for customers around the world in this process. Our new offices in Madrid and Barcelona means we are ideally placed to tackle this need in southern Europe head on. As we see it, data protection and data transfer have no borders and we plan to continue our expansion globally in 2020”.
Steffen Schaack, Senior Vice President Global Business Development at Drooms, added: “Our new team members will strengthen our presence in their respective markets and develop further our relationships with customers. We are now widely recognised as the global, independent experts for secure data transfer and digitalisation.”
Javier Meseguer has 16 years’ experience in digital services and data rooms and has invaluable expertise in establishing sales networks. He previously worked as Director of Sales for Snowflake, a provider of cloud-based data rooms, as well as IntraLinks, SAS Institute and The MathWorks.
Prior to joining Drooms, Ditte Nielsen worked as Senior Account Manager at Merrill Corporation, a global SaaS provider for M&A. Alessandra Azzena arrives from Tableau Software, where she oversaw account management and sales in her role as Commercial Territory Manager.
Drooms has also appointed Dennis Kasch as Business Development Manager for the DACH region sales team, bringing its total number of employees across the European market to 170.
You can find our latest interview with Drooms specialists here.
Ebury provides corporate banking services to small businesses that trade worldwide. Operating in 119 countries, in 140 different currencies, it has processed over £16.7 billion in payments since its inception and helped over 43,000 clients trade internationally.
News has broken that Santander is buying its 50.1% stake in the fintech for £350 million, of which £70 million will help Ebury merge into new markets in Latina America and Asia.
This is a bold but expected move form Santander, as it manages accounts for more than four million SME customers around the globe, 200,000 of which operate on an international scale. The partnership between Santander and Ebury will also allow the fintech to make the most of the bank’s relationships, assets and brand to build new banking partnerships.
Ana Botín, group executive chairman of Banco Santander, said: “Small and medium-sized businesses are a major engine of growth around the world, creating new jobs and contributing up to 60% of total employment and up to 40% of national GDP in emerging economies. By partnering with Ebury, Santander will deliver faster and more efficient products and services for SMEs, previously only accessible to larger corporates.”
Activity was particularly subdued in the difficult to interpret third quarter of the year, when USD 622.2bn worth of deals were struck globally, down 21.2% on 3Q18 (USD 789.7bn) and with 1,164 fewer deals than last year.
The US market, which had so far seemed immune to the global downward trend at play since the middle of last year, is starting to be impacted. At USD 262.9bn in 3Q19, US M&A is down 32.1% on 3Q18 (USD 387.1bn). Worth USD 1.25tn YTD, US M&A is still marginally up on the same period last year (USD 1.23tn), just about retaining a 50% share of global M&A activity, down from 52.5% in 1H19. Marred by the trade and tech war between Washington and Beijing and persistent political instability in Hong Kong, YTD M&A activity in Asia is down 26.5% over last year to USD 417.2bn.
Despite a small recovery over the summer, European M&A remains 29.4% lower compared to the same period last year, as a weakening European economy and geopolitical tensions continue to dampen activity. However, London Stock Exchange’s USD 27bn acquisition of US-based financial data provider Refinitiv, the largest deal globally in 3Q19, exemplifies the strength of European outbound M&A, which at USD 187.1bn is up more than 20% on last year and at its highest YTD level since 2016.
Beranger Guille, Global Editorial Analytics Director at Mergermarket commented: “Whether they are motivated by the desire to get more growth, or a way to secure future survival, deals are getting larger. On the back of the longest equity bull market in history, and amid persistently low interest rates, corporates have ample cash reserves and appealing debt financing options at their disposal to pursue M&A. This context and the growing feeling that it will not last forever are pushing valuations up.”
The purchase, which was originally agreed in July 2018, and has since been approved by the appropriate regulatory authorities, will see the global FinTech company acquire 100% of the firm.
Under FNZ Group’s ownership, ebase will continue with its strategy to become the leading digital financial services partner in Germany, through sustained investment in technology and customer service.
Adrian Durham, CEO of FNZ Group said: “This is an important milestone for FNZ Group and reaffirms our commitment to becoming a leader in the provision of B2B digital wealth management technology for financial institutions and their customers globally.
“ebase is a well-established investment platform and leader in the digitisation of wealth management solutions, known for its performance in the German financial services market.
“We look forward to partnering with the highly-capable ebase team to grow their business in Germany and together expand the range of state-of-the-art technology platforms available to support wealth management.”
Kirkland & Ellis acted as legal adviser to FNZ and Preu Bohlig assisted with IP, IT and Data Protection related issues. Key individuals of Preu Bohlig who assisted with the transaction included Christian Breuer (Data Protection), Andreas Haberl (IP) and Daniel Hoppe (IT).
Based in northern Israeli town Yokneam, ADT develops and produces blades and machinery for the dicing of silicon-based integrated circuits, package singulation, and hard material microelectronic components. The company, which employs around 100 people worldwide, was founded in 2003 by a group of private investors who bought the dicing equipment and blade divisions of Singapore-based semiconductor company Kulicke and Soffa Industries Inc.
Tel Aviv-based law firm Barnea Jaffa Lande & Co. represented Neng Yang in the deal. ADT was represented by Be’er Sheva-based law firm Tulchinsky Stern Marciano Cohen Levitski & Co.
